Santa Rally for Stocks? Get Out While the Getting is Good, Says This Strategist

Blink and you may have missed the one shining moment for equities this week.

Thursday’s gains for the S&P 500 and other big indexes look pretty lonely when stacked up against the rest of the week’s losses. It could be tech stocks again, that spoil the party for everyone else on Friday after chip maker Nvidia warned that its revenue will decline in the fourth quarter.

After some brutal selling in October, the last quarter of the year is already stacking up to be the worst since September 2015.

Waving the red flag in a recent note, she tells clients not to be lulled into a false sense of security by the small rebound stocks have seen since red October, when the S&P 500 fell nearly 7% — it’s up 0.7% so far for November.

MarketWatch

Clawing back

Shah says “rather than a signal of renewed equity market strength—any year-end rally should be considered an opportunity to exit U.S. equities.” Mull that over if Santa rally talk starts to reach your water collar.

Shah’s concerns are based on some familiar themes — Fed tightening, a negative economic hit from a strong dollar, POTUS stimulus that is slowly fading, a rout for tech stocks and the U. S-China trade spat. But one of these stands out bigly.

“I should emphasize again that my negative outlook for U.S. equities rests heavily not on assumptions about the trade war, but on the reversal of easy monetary conditions,” Shah says. Her full note to clients can be found here.

The market

Even a big gain from crude US:CLU8 doesn’t seem to be helping much. (Note, oil moves don’t always have such a big effect on stocks) Gold US:GCU8 is up a bit, and the dollar DXY, -0.60% is firmer, with the pound GBPUSD getting some breathing room as Brexit stays in the spotlight.

Check out the Market Snapshot column for the latest action.

Europe SXXP is sagging and Asia stocks ADOW were mixed, with chip-makers under pressure.

The chart

Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, has been crunching the numbers on hedge-fund activity in the third quarter. Her firm’s research found that those funds continued to back out of tech, communication services and internet retail in the period, turning underweight on that sector for the first time since RBC started tracking the data in 2010.

But have the hedgies found a new hero? In RBC’s so-called Hot Dogs Screen, which shows the S&P 500 stocks that have seen the most hedge fund dollars invested, Microsoft MSFT has claimed the No. 1 spot, after Facebook fell to No. 5.

Here’s a look at the top 10 stocks hedge funds loved the most in the third quarter in our chart of the day:

RBC

The buzz

Nvidia NVDA is plunging after the chipmaker’s earnings and outlook fell short of expectations. Blame it on a crypto-hangover. Plus here’s how bad the chip slowdown could get.

Boeing BA shares are down. The airliner is being sued by the family of a passenger killed in the deadly Lion Air crash, amid accusations it failed to tell airlines and pilots about a potential deadly fault in the MAX 8 jet hardware. Meanwhile, Southwest LUV repaired two faulty flight-control sensors on its MAX jets just three weeks before the Lion Air disaster.

Tesla TSLA vows to produce 7,000 Model 3’s a week by end-November.

Some rumblings on the geopolitical front as North Korea has announced a new “secret” weapon. And U.S. Commerce Secretary Wilbur Ross says the U.S. still plans to bump China tariffs up to 25% in January.